Banks to cease leasing from June, charges on cash withdrawal: Budget 2016

Nov 20, 2015 (LBO) – Sri Lanka’s banks have been asked to cease leasing activities from 01st of June next year while pawning should be limited to five percent of total loan portfolio, Finance Minister Ravi Karunanayake said in Parliament. “Honourable Speaker, I propose that licensed banks should concentrate on their core banking activities,” Karunanayake said. “The Leasing business, has become a distraction to core banking functions and as such banks should cease in engaging in leasing business from 01 June, 2016.” Speaking later a forum organized by KPMG, Karunanayake said: “Any company, we have given certain time for them to move out. It can be a standalone company, but cannot be linked up to the group company.” Karunanayake added that banks are not keen to lend to certain important sectors of the economy, which has hampered the growth of these sectors. "Our banks have confined themselves to collateral based lending and have shown a marked reluctance to engage in 'business model' based lending," he said. “In this background, I propose that all the banks should lend at least 10 percent of their loan portfolio to Agriculture, 5 percent to SME and 5 percent to Women and Youth,” he said. Given the impact the international gold prices has had on the local banks specially with large pawning portfolios, the banking sector also asked to limit their pawning business to a maximum of 5 percent of their loan portfolios. However he encourage banks to lend to customers who are engaging in stock market activities. The budget 2016 also imposed 2 percent charge for 1-10 million rupee cash withdrawal and 3 percent charge on above 10 million withdrawal. There will be no charge for the withdrawals less than one million. "To discourage cash transportation in line with security considerations, I propose to impose following charges on cash withdrawals. Less than 1 million, no charge. Between 1 million and 10 million, 2 percent. Above 10 million, 3 percent, he said. Karunanayake proposed the fee on bank drafts should not exceed 150 rupees per draft. All employers have been asked to instruct their employees to open bank accounts for the purpose of remitting the salaries. All banks were required to expand their branch network by 15 percent by opening branches in lagging regions to address the imbalance in the accessibility to finance which created by over banking in urban areas and under banking in regions. Each of these branches will have to employ at least 6 employees.